NB: the forex rates mentioned above, revised as of 9th Dec 2016, are inter-bank prices that will require a margin from your bank. Foreign exchange brokers can save up to 5% on international payments in comparison to the banks.

Pound to US Dollar Exchange Rate Forecast Updated

Lloyds bring our attention to the strong support of the 1.35 region, that hasn't been breached since the 1980's:

"We made a low at 1.3503 in 2009, but this area of support has held since the mid 1980’s. In addition each time we have been down at these levels it has been relatively brief, with Friday’s month end close going to be watched by the technical community to see if it is the weakest close in 30 odd years. It is interesting to note that GBPUSD is out of line compared to 2y interest rate spreads." source.

Retail sales in the UK have slowed to below average for the time of year, with expectations for March their lowest since 2013, weakening GBP further against USD, EUR and AUD.

According to CBI Director of Economics, Rain Newton-Smith, ‘Overall, conditions remain challenging for retailers. Although sales have continued to grow and optimism has risen, expectations for sales growth are lacklustre and retailers are still wary of investing. And unreformed business rates are making it tougher for retailers to open up new shops on the high street.’

Carney Holds Back

Mark Carney, the Bank of England (BoE) Governor, would not confirm to a committee of MPs today that the most likely path for UK interest rates was up, weakening the GBP vs USD exchange rate.

Considering the Governor had previously been confident that rates would definitely rise, the fact Carney has now changed his wording so that it doesn’t exclude a cut has investors fearing that UK rates will be heading further down.

The British referendum is fast becoming the most significant economic event in 2016, with a very high potential of heightened market volatility ahead of the 23rd June vote.

After Mayor of London Boris Johnson announced that he would be campaigning for the UK to leave, Pound Sterling (GBP) exchange rates plummeted.

Even Prime Minister David Cameron's partial success at persuading EU officials to back some of his reforms proposals wasn't enough to boost investor confidence.

Sterling was down by as much as 2.4% against the U.S Dollar at one stage, trading at a low of 1.4058, the lowest level since March 2009.

The UK currency also declined to 1.2750 against the Euro, approaching the lowest level in more than a year, after London Mayor and political box office Boris Johnson proclaimed his support for the Out campaign ahead of June’s referendum.

The Pound has sank to the lowest level against the U.S Dollar in seven years, amid concern that the UK is heading towards an exit from the European Union.

Concerns over an EU exit and the effect it will have on the UK economy has pushed the Pound down by as much as 4% against the U.S Dollar and this market volatility and Sterling weakness will likely remain over the coming months until that June 23rd referendum.

An increase in the probability of a UK exit will correlate with further losses for the Pound and we can expect more to come, after the Pound hit lows on Monday to record its biggest one-day loss since the Bank of England cut interest rates in 2009 and began quantitative easing.

British Pound to Australian Dollar cross dropped over 2% value yesterday to trade below 1.95.

Sterling was down to 1.95 against the Australian Dollar, losing more than 2% on the day, to the lowest levels since June, and it was a similar story against the New Zealand Dollar, Canadian Dollar and South African Rand.

UK stocks were up for the first time in three days, helped by mining shares, which were up more than 8%. The FTSE 100 index gained 1.5% by the close of trading in London, as the uncertainty of a UK exit isn’t having the same impact on equities as it is the UK currency.

The market hasn’t fully priced in the possibility of the UK leaving the European Union and there will likely be many more days like yesterday in the lead up to the referendum with even greater emphasis placed on every opinion poll. The media are also helping with the volatility because it’s a much bigger news story should the UK leave than to remain.

The short-term view is that a UK exit would be very damaging to the UK economy and potentially risk another recession with the Pound losing as much as 20% in value, amid concerns about Britain’s £229 billion annual trade with the Eurozone.

The economic data released is becoming a bit of side story with market attention focused on 'Brexit' and therefore trends will likely be dominated by risk sentiment.

Investors are reluctant to buy the Pound amid the uncertainty and the only release of note this week will be the GDP data revised estimate for the fourth quarter expected to remain unchanged from the preliminary reading.

In the U.S today, consumer confidence data is expected to show a decline on the month for February, while existing home sales is also likely to fall from the previous data in December.

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Adam Solomon

Adam has almost a decade of experience working in one of the UK’s leading currency brokers and has been...